Sea cucumbers lead China’s logistics blockchain charge

With their leathery skin and tiny feet like tentacles, sea cucumbers seem an unlikely candidate for spearheading blockchain technology.

In China, the marine animal, who counts starfish and sea urchins as cousins, is considered a delicacy and is an important ingredient in traditional Chinese medicine where it’s used to treat arthritis and improve sexual health.

Introducing blockchain to sea cucumber production helps mitigate counterfeit risk and bolster food safety—which has become one of the most significant concerns among China’s 1.3 billion people.

That’s why Chinese e-commerce giant JD is cooperating with sea cucumber producers to put information—such as where the sea creature came from, when it was raised, fished, and produced—on their food tracking blockchain. The company has even installed 24-hour cameras that live stream the fishing area and production factory in the northern Chinese port city of Dalian.

The quest for safe food

Chinese consumers have long harbored fears about the quality and origin of food and many other products. The most infamous fake goods scandal in China happened in 2008 when 6 infants died and almost 300,000 were hospitalized over a baby formula tainted by the chemical melamine. Each year reports on fake or tainted food emerge with the latest big scandal involving substandard vaccines given to more than 200,000 children uncovered in May.

Counterfeits are another problem plaguing China’s supply chain, and it’s not just the fake Louis Vuitton handbags. Designer goods, cosmetics, alcohol, and toys are just some of the items counterfeited. China is estimated to be the source for more than 70% of global counterfeiting, amounting to more than $285 billion, and many of these products are sold in China itself.

JD’s rival Alibaba has been developing its own blockchain applications to stop fakes. In this case, it’s another famous Chinese product—local liquor brand Maotai. With its high price tag, Maotai became both the favored drink for greeting foreign dignitaries and the bribe of choice for high officials.

To avoid rampant counterfeiting, Alibaba affiliate Ant Financial now tracks the transparent liquor through a QR code on the bottle cap recorded on a blockchain ledger. “Supply chains are likely to be to most promising blockchain application next year,” according to Ant Financial’s blockchain expert Hui Zhang.

Blockchain technology has gone through an even more severe hype cycle than most emerging technologies. So far it has been touted as a solution to everything from finding out where your coffee comes from to governance. But supply chain applications have drawn interest from many big players in addition to Alibaba and JD, including IBM, SAP, and Walmart.

According to research by consultancy Capgemini, reducing costs, improving traceability, and transparency are the main reasons why organizations are investing in blockchain. However there is still a long way to go: almost 90% of blockchain projects are in the proof of concept stage, with just 3% applied on a larger scale.

So how does it work? Instead of having a central intermediary, blockchains synchronize all data and transactions across the network with each participant verifying the work of others. The digital ledger is maintained in real-time and the data on it is tamper-proof: once an information is written down, it’s there forever.

Applied to the supply chain, blockchain can help record the quantity and transfer of a particular asset—such as a sea cucumber—track purchasing orders and receipts, and link products to serial codes and RFID (radio frequency identification) digital tags. It can even help verify if a certain product is organic or fair-trade.

Local company VeChain has announced an IoT and blockchain-based vaccine tracking system with quality assurance and risk management company DNV GL, while startups such as Walimai, DropChain, Waltonchain, and others are developing their own supply chain products.

In 2017, IBM, Wallmart, JD and Tsinghua University announced a Blockchain Food Safety Alliance which collects standardized data about food origin and quality to enhance traceability of the food supply chain.

However, handling large-scale supply chains is much more complicated than getting a chicken with a GPS tracker from farm to table. Around 90% of trade happens through ocean freight shifting goods from one continent to another and much of such transfers depends on significant amounts of old-school paperwork.

One notable food scandal in China discovered in 2017 included $483 million worth of frozen meat some of which dated to the 1970s. The meat was shipped from abroad to Vietnam via Hong Kong and then smuggled into China avoiding customs and inspection.

Blockchain can not only make the source of goods more transparent, it has the potential to save trillions of dollars by fixing problems inside supply chains. The technology may be a good solution for supply chains that involve multiple sides that do not know each other or trust each other.

One example is uploading quality inspection results that would help future clients know their suppliers better, an application developed by China-based chain management solution company EximChain. Blockchain could also save money invested in keeping extra inventory.

According to EximChain’s CEO Hope Liu, most links within the entire supply chain have different systems of tracking their goods and they do not share inventory or information about demand. “If you look at blockchain as a common ledger through which entire supply chain can get updated information in real time, then this kind of inefficiencies could be solved,” Liu told TechNode.

However, using blockchain in supply chain still comes with many different problems, the most obvious being that anyone can sneak in sea cucumbers of dubious freshness, falsify records on the distributed ledger, or hand over an envelope filled with money to the inspector in charge of verifying the goods. This is sometimes referred to as, “garbage in garbage out” problem.

“Basically blockchain itself does not prevent fraud but it keeps a ledger of everything that happened,” said Liu. If an inspector was bribed, people could check every report produced by this inspector because he would have to use his or hers private key to sign it.

A viable option?

Self-executable smart contracts which have become the main selling point of blockchain projects have also been criticized. Some have pointed out that the technology is ill-suited for the kind of environment where multiple sides are constantly haggling over prices and conditions—the very definition of trade. According to Liu, if there is a mistake or change in an order, this cannot be changed within blockchain but a new invoice can be made.

Another issue is that using blockchain requires linking the physical world to the digital. Adding QR codes, GPS trackers, and RFID digital tags might make sense if you are selling your poultry for RMB 238 ($37) a piece (how much gogochicken’s chickens cost). However, even with prices of tracking technology falling, many companies will shy away from investing in tracking technology, not to mention standardizing data in order to put it on blockchain.

Speaking at a recent event in Beijing, Li Yao, manager JD’s blockchain anti-counterfeit and tracing unit, introduced the JD Blockchain Open Platform, which aims to help enterprises who don’t have the capabilities to develop their own blockchain applications. One big problem for implementing blockchain tech is the sheer number of supply chain companies on the market with different capabilities and requirements, Li said.

In Li’s view, companies such as JD and Walmart need to work together and with government organizations and regulatory bodies to develop a set of global standards for food traceability.